China has surpassed Japan for the first time to become the world's largest car exporting country. What does this mean?

The Confidence of an Industrial Nation and Its Technological Advancement

Industrial nations should possess a certain confidence, and this year, a key term is the support for technological development. Since the Industrial Revolution, it has been an unwavering truth that those who master advanced manufacturing emerge as leaders in competition. This is true even for nations defeated in wars, which have quickly risen in the era of economic globalization due to their industrial foundations. Technology, and the productivity it drives, differ from finance and politics in that they always play a role in improving the quality of life for the average person. This is best exemplified by increasingly affordable industrial products, with cars being a prime example. Recently, I saw the prices of imported cars in the 1990s. If we consider their current value, a Santana from that era could now buy a dozen or more cars of the same class with higher specifications, given that the 1990s were still a time when wealth was measured in tens of thousands.

China has become the world’s largest industrial nation, a development that has only taken place over the past decade or so. Joining the World Trade Organization in the early 2000s, China hopped on the train of economic globalization. It was a reciprocal pursuit; the world needed cheap factories, and China needed the developmental opportunities provided by global markets. This ushered in an era of rapid incremental growth. By 2010, China surpassed Japan to become the second-largest economy and by 2013, it was the world’s largest goods trading nation. Regular readers might be familiar with the demographic line and development line often used in these articles. The post-2000 era coincides with the second wave of demographic dividends under compulsory education, coupled with China’s traditional culture, making it the region with the highest cost-effective labor dividend. Note that population does not equal dividend; systematic education and social revolution are needed to unleash its potential. This is why I do not believe that India’s economic data at this stage is sufficient to match the economic miracle created by China. At similar stages of development (when GDP per capita growth rates are close), China’s growth rate has been higher and more stable, whereas India’s has fluctuated greatly in the past decade, failing to reach China’s nearly 40-year growth rate of 10%.

Returning to the main topic, development is a process. The advantages of globalization include higher foreign investment, industrial succession, and a broader global market demand. For a long time, China’s growth was not limited by insufficient domestic demand because the external European and American markets represented a stock market of over a billion people with extremely high spending power. This is also why China’s largest trade surplus countries have long been the United States and Europe. Of course, there were things that had to be given up, the most typical being the technological barriers and currency status held by Europe and America. Earning money within their framework also meant sharing profits, with Europe and America taking away both cheap goods and dividends from technology and finance. During the high-speed development phase, this was a mutually beneficial relationship, as Europe and America were not only the creators of economic globalization but also among its biggest beneficiaries. This is also reflected in the contribution of China and the United States to about half of the global growth rate over several decades.

After decades of industrial accumulation and technological advancement, China now has the capability to compete in high-end markets, especially in a new field: electric vehicles. This has disrupted the previous high-end market’s technological monopoly, creating a parallel dynamic. A more complete industrial chain and cheaper labor give Chinese products strong competitive power. The only thing lacking now is probably not quality, but brand effect. The inertia of older generations’ thinking is significant and not easily changed in the short term. However, the younger generation is much more receptive, and their thinking is not as deeply ingrained. In reality, all these words are of little use; what matters is the real driving experience and the market’s response. The market is always the ultimate test of a product. Chinese cars, both domestically and internationally, are showing a very high growth trend, and the brand image has undergone important changes, all within the last decade. Many of us are witnesses to this, covering the full price range and offering consumers more choices and experiences. Manufacturing has been the foundation of the economy for decades, and this will not change in the long term.

P.S., I am not only an observer of the changes in domestic cars but also a user and a witness to the rapid development of Chinese cars over the past decade or so. I have always had more faith in the forward development of science and technology and am more willing to break free from conventional thinking to embrace new things. The rise of domestic cars is already significant, and in the future, there may be a gradual shift in some of the market’s fixed mindsets, from low quality and low price to high quality and high cost-effectiveness in brand recognition.

The State and Future of China’s Automotive Industry

In 2023, China’s automotive production exceeded 30 million units, setting a new historical record. Last year, domestic car initiatives like rural car purchasing programs, local discounts, and various automotive exhibitions and group purchases were implemented. Coupled with national subsidies and the surge in new energy vehicles, these initiatives nearly exhausted the domestic car purchasing potential. Those who could afford it, whether they needed a car or not, mostly bought one. The domestic supply for 2023 was approximately 24.7 million units (with around 5.3 million units exported).

Interestingly, the 2019 car production was 25.72 million units, with 1.024 million units exported, roughly equating to a domestic supply of 24.7 million units. The domestic car purchasing volume in 2023 was comparable to that of 2019. This indicates that even with policy stimulation, the domestic car market has entered a phase of slow growth. Considering the overall economic environment and population decline, last year’s 25 million units might have already been a peak, unlikely to see significant growth in the short term.

To unleash domestic production capacity and achieve higher targets, the main focus should be on exporting abroad. Japan’s car export development serves as a good reference. In 1979, Japan entered its golden age of car exports, shipping 4.5 million vehicles, including 2 million to the United States. The peak came in 2008, with 6.73 million vehicles exported (with domestic sales of only 3.212 million units). Even though China exported 5.3 million vehicles in 2023, it’s only comparable to Japan’s performance two decades ago.

Japan’s rapid growth in car manufacturing and exports triggered vigilance in the United States, leading to an anti-dumping investigation against Japanese cars in 1980. Eventually, Japan and the U.S. reached an agreement, limiting Japan’s car exports to the U.S. This series of agreements dealt a significant blow to Japan’s car industry. Following years of automotive sanctions and other measures against Japan, it led to a decade of decline for Japan.

The trend shifted only after Japan significantly moved its domestic car manufacturing capacity abroad, especially to the U.S., through various compromises and concessions. However, China is different. It has a solid domestic market to fall back on. Due to international circumstances, Chinese cars haven’t penetrated the U.S. market and thus haven’t faced direct opposition from the U.S. But recently, the EU started investigating China’s new energy vehicles for anti-subsidy violations. As Chinese new energy vehicle exports increase, it’s plausible that the EU might also start anti-dumping investigations to protect its own enterprises.

Although Chinese car development is progressing well with increasing exports, reaching a certain volume will inevitably trigger vigilance and countermeasures from other countries. This is already evident in the Munich Motor Show, where many German media outlets expressed concern. Chinese media headlines often proclaim “Chinese car companies dominate the world” or “China conquers Munich Motor Show,” which might not be favorably received internationally.

German media predicts that by 2030, without regulations, Chinese new energy vehicles could monopolize the European market. Some see this as China’s rise and assertiveness in the international community. However, this strong ideological stance might not be beneficial for business, likely provoking hostility from local automotive interests. If the narrative is about conquering, how can local entities warmly welcome external forces?

The challenge for China’s automotive industry is to reduce foreign vigilance, achieve mutual benefit, and lessen local opposition. In the next decade, China is likely to follow a path of leveraging its strong domestic supply chain, fully utilizing its production capacity, and exporting en masse. By collaborating with foreign enterprises and setting up factories abroad, China could eventually spawn giants like Toyota and Volkswagen, selling millions of vehicles globally each year.

This path will undoubtedly be challenging. Celebrating victory is premature, as established global powers are unlikely to let new players rise and dominate easily.

If China can influence France’s colonial presence in Africa, then Chinese cars will have smooth sales in the European Union.

The industrial empire’s products require the support of a military empire and the protection of a diplomatic empire.

Industrial success is not just about creating something; it’s about being able to sell what you create to your target market at a reasonable price.

The development speed of new technologies such as electric vehicles, photovoltaics, and energy storage far exceeds that of military and diplomatic endeavors. There may be some setbacks in the future.

Let’s hope that progress can be accelerated in the other areas.

The Implications of China’s Automotive Industry

This implies that Toyota and Hyundai-Kia, the world’s top two automotive companies, have poor sales in China, indicating that Chinese consumers simply do not understand cars.

This means that Rolls-Royce and Bentley are the gems on the crown of human industry, not household cars.

This suggests that the automotive industry is a labor-intensive sector with high pollution, high energy consumption, and low added value, an industry that Europe, the United States, and Japan have long abandoned.

This signifies that high-end automotive technologies such as ballpoint pen ball bearings and cigarette lighter pads are controlled by foreign companies, leaving China only involved in low-end products like battery manufacturing.

This implies that China’s efforts to snatch Japan’s automotive business will ultimately push Japan towards the United States, and China should proactively engage with Japan to gain goodwill.

This means that the income of Chinese automotive industry workers is much lower than their counterparts in Europe, the United States, and Japan, so no matter how much the Chinese automotive industry develops, it only benefits capitalists and has no impact on workers.

What does this have to do with the little girl solving equations?

China’s Automotive Industry in 2023: Achievements and Opportunities

In 2023, several significant events unfolded in China’s automotive industry:

1. China became the world’s top automotive exporter, with over 5 million vehicles exported throughout the year.
2. For the first time in history, Chinese brand BYD made it into the top ten global automotive companies.
3. Among the top ten brands in China’s new energy vehicle market, eight were domestic brands.
4. China had 13 companies among the top 100 global automotive components enterprises, with CATL ranking in the top 5. China showcased a series of original innovations in automotive new energy, intelligent technology, and advanced manufacturing.

These milestones reflect a proud reality for the nation: China’s automotive industry is rapidly transitioning from being big to being strong and making significant strides.

1 | Why China’s Automotive Industry is Accelerating Ahead

In the 120 years since the birth of the automotive industry, the competitiveness of automotive products has relied heavily on economies of scale and technological advantages. In the last decade, a competition pattern emerged with Germany, Japan, the United States, and South Korea leading the way, followed by France, Italy, and China.

However, the automotive industry is currently undergoing a historic transformation from traditional internal combustion engines to electric intelligent vehicles. The technological focus and industrial core of the global automotive industry are undergoing fundamental changes.

China is a major driver of this technological transformation. The 863 New Energy Vehicle major project spanned two Five-Year Plans from 2001 to 2010, yielding numerous achievements, over 3,000 patents, and establishing more than 30 new energy vehicle technology innovation platforms, laying the foundation for new energy vehicle technology.

BYD’s growth today can be traced back to the development-oriented national policies for new energy vehicles. In 2008, BYD introduced the world’s first mass-produced plug-in hybrid electric vehicle, the F3DM, which had a 1.0-liter engine and an electric motor, priced at around 150,000 yuan at the time. BYD later pursued both hybrid and pure electric technologies, investing heavily in R&D for 15 years, leading to its recent entry into the top ten global automotive companies.

From the early days of the 2008 Olympics and the 2010 World Expo to the “Ten Cities, Thousand Vehicles” new energy vehicle pilot demonstration program and the official launch of the energy-saving and new energy vehicle industry plan in 2012, Chinese automotive companies received substantial subsidies for new energy vehicle development and production. Around 2015, new players in the automotive industry, such as NIO, XPeng, Li Auto, and SERES, emerged, along with the rapid rise of power battery companies like CATL. Today, CATL alone accounts for over one-third of the global battery market share among the top 100 global automotive component enterprises.

China’s progress in the new energy vehicle sector, achieved through proactive national policies and market-driven mechanisms, has been built upon nearly two decades of accumulation.

2 | Why Independent Brands are Rising

The automotive market is where consumers vote with their wallets. When it comes to substantial automotive purchases, consumers prioritize product quality over brand loyalty.

While independent brand automakers may have been weaker in core technologies like internal combustion engines and transmissions, they have made breakthroughs in small-displacement engines in recent years. Their overall vehicle manufacturing capabilities have significantly improved, and their economies of scale allow for better price control, resulting in high cost-effectiveness. Independent brands have gained popularity in the global automotive market. In 2023, 75% of the cars exported from China were traditional internal combustion vehicles. SAIC Group, Chery Automobile, Great Wall Motors, and others have maintained rapid growth in overseas sales.

In the field of new energy vehicles, independent brand automakers have not just risen but surpassed expectations. BYD is the world’s first automaker to fully embrace new energy, with vehicle sales exceeding 3 million in 2023, far surpassing Tesla’s 1.8 million sales, ranking ninth globally. The achievements of independent brands have not gone unnoticed, and there is still room for further growth.

According to data from the China Association of Automobile Manufacturers, new energy vehicle sales in China grew by 36% in 2023, with retail sales reaching 7.75 million units and a market penetration rate exceeding 35%. China’s vast and diverse geography, suitable for both pure electric and hybrid vehicles, further strengthens the position of new energy vehicles. In extreme conditions like the -30°C temperatures of Changbai Mountain, BYD’s performance remains impressive.

Across different price segments, independent brand new energy vehicles excel in exterior design, power performance, interior features, intelligent cabins, and advanced driver assistance systems. Models like BYD Han, Xiaopeng P7, Li ONE, Zeekr 001, NIO ES6, Li Auto L7, SERES SF5, Weichai Enranger 05, and Weltmeister U8 have achieved historic success in their respective market segments. For instance, Weltmeister U8, a luxury car priced over one million RMB, recorded monthly sales of 1,593 units in December, setting a historic record.

Automobile consumption involves long-term decisions, and the rise of independent brand automakers is due to substantial improvements in product quality and technological advancement. It is not driven by abstract notions of national pride.

3 | Future Opportunities in the Automotive Industry

Out of 32 developed countries globally, only Germany, Japan, and the United States are widely recognized as automotive industrial powerhouses. The automotive industry is a key sector in manufacturing, with entire value chains centered around vehicles, automotive components, and the aftermarket, creating trillions of dollars in value and millions of high-paying jobs.

In 2023, China produced 30 million vehicles, consumed 25 million domestically, and exported 5 million, making the automotive and related industries account for over 10% of the GDP.

The “2024 Annual Top Ten Trends in China’s Automotive Technology,” released by the China Society of Automotive Engineers, demonstrates China’s global leadership in battery technology, motor technology, intelligent driving technology, and intelligent manufacturing. Many original innovations have reached the forefront of global technology.

In the last two months of 2023, Huawei achieved a reputation turnaround in the automotive sector with its vehicles like the Weltmeister M7, Zeekr S7, and Weltmeister M9. With more than 200,000 pre-orders and over 500,000 orders for the Weltmeister M9, which is priced above 500,000 RMB, it received over 10,000 orders within two hours of its launch and exceeded 30,000 orders within a week. The total orders have now surpassed 60,000.

Xiaomi held a technology briefing at the end of last year, presenting a concept of an entire ecosystem for people, cars, and homes. They have made significant breakthroughs in integrated die-casting technology, and consumers are eagerly awaiting details on Xiaomi’s first car, the SU7, including its performance parameters and pricing. NIO also unveiled the ET9, a smart electric executive flagship sedan priced at 800,000 RMB, introducing a series of astonishing technological innovations.

In terms of industrial development, the automotive industry has become a new pillar industry in China, taking over from real estate. In terms of technological innovation, independent brand automakers are becoming stronger, attracting more high-level talent.

The “New Four Transformations” in the automotive industry—new energy, electrification, connectivity, and sharing—offer immense potential. Following the typical development pattern in the smart terminal industry: hardware, software, network, and platform, hardware is gradually converging. Some companies stand out, defining the future of automobiles. Predicting which platform giants will emerge with the advent of car networking is difficult, but the impact on daily life will undoubtedly be enormous, creating numerous opportunities.

Reflecting on 2007, the global economic crisis coincided with the emergence of smartphones, driving a decade of rapid growth in the mobile internet sector and the birth of industry giants. In the current international environment, the emergence of new energy intelligent vehicles is undoubtedly the industrial highland of the next decade, connecting more extensive sectors like energy, manufacturing, connectivity, and electronics. China has a competitive advantage in this field, potentially driving the comprehensive rise of its manufacturing industry.

The end of the “Seiri movement”

In the past, the “Seiri movement” had at least some industry support, and the Ministry of Foreign Affairs had the budget for it.

Now, with the decline of the “Seiri movement”, they might be relying on their own resources to sustain themselves at work.

Let’s see how long the “Seiri movement” can sustain itself with its own resources.

This means it’s just the beginning. The gods and colonists are breaking through the defenses.

Challenges and Opportunities for Chinese Automakers in the Global Market

In the current economic environment, there are several key issues that can be described as “popular topics for generating answers”:

The first category is the decline in housing prices. Many people are interested in this because high housing prices have been a long-standing issue.

The second category is the overall rise of new energy vehicles in China.

The third category is China’s dominance in certain industrial manufacturing sectors, such as wind power.

Popular topics can attract a lot of attention, but this answer will not delve into those trends.

In a world where the Angsa system dominates the global order, Chinese car manufacturers will not be allowed to sell their cars in mainstream overseas markets through “fair trade” methods.

For example, the new rules on electric vehicle subsidies in the United States are aimed at keeping vehicles with Chinese batteries out of the North American market and forcing automakers to establish electric vehicle battery supply chains in the United States.

Similarly, the European Union has initiated an investigation into subsidies for Chinese electric vehicles, effectively aimed at preventing or slowing down the entry of Chinese new energy vehicles into the European market.

Looking at the sales rankings in various countries/regions' automotive markets, China is undoubtedly the first.

In 2022, China’s new car sales reached 26.84 million units, a year-on-year increase of 2.2%, ranking first in the world.

In 2022, the United States had new car sales of 13.87 million units, a year-on-year decrease of 7.9%, but still ranking second in the world.

(Note: Considering the influence of the United States on Canada, if Canada’s 2022 sales of 1.479 million units are added, the North American market has a size of 15 million units.)

The European Union market had 9.256 million new car sales in 2022, a year-on-year decrease of 4.6%, ranking third in the world.

Japan’s market had 4.201 million new car sales in 2022, a year-on-year decrease of 5.6%, ranking fourth in the world.

If we consider the South American market as a whole, it had approximately 3.5 million units in sales in 2022, ranking fifth.

The Southeast Asian market, consisting of six countries (Thailand, Vietnam, Malaysia, Indonesia, Cambodia, and Singapore), had a production volume of 2.665 million units in 2022, with sales figures roughly matching production, ranking sixth.

From the above market conditions, although the markets in the United States, the European Union, and Japan are all declining in sales, these markets still hold a significant share in the global automotive market, but they are not easily accessible for Chinese manufacturers.

Perhaps Southeast Asia is a market share that China can more easily capture in the era of new energy vehicles, especially with the benefits of the RCEP. However, the market size is relatively small at the moment, equivalent to only one-tenth of China’s domestic market. Just in Guangdong Province alone, new car sales in 2022 exceeded 4.1 million units, with over 1.3 million of them being new energy vehicles.

Therefore, in the near future, the main survival space for domestic car manufacturers will still be the domestic market, and this intense competition within the country will be fierce. Many new energy vehicle manufacturers may be eliminated domestically, which is regrettable but inevitable.

The United States and old Europe will never allow China to dominate the automotive industry in the era of new energy vehicles.

Therefore, to truly make Chinese cars sell well worldwide, it is essential to accelerate the development of maritime power.

When Taiwan is reunified, the second island chain is peacefully resolved, and the United States completely withdraws from Asia, perhaps then will be the real beginning of China’s cars booming in the global market.

This means that the Japanese will have to rely on fishing for their livelihood.

China deserves the title of the “smasher” among developed countries. This year, it has crushed Japan’s automobile industry and demolished South Korea’s shipbuilding industry. These industries are vital for the livelihoods of millions of people. As one declines, the other grows, and China has added millions of jobs.

This signifies that advanced industrial nations with automobiles as their primary industry and their associated alliances are intensifying their trade wars, sanctions, and industrial chain blockades against China, leading to more critical moments.

The U.S. and Japan engaged in five trade wars involving steel, automobiles, and semiconductors, as listed in the table below, only in the last century.

The automobile industry is a core industry of industrialized nations, inevitably making China the focal point of a comprehensive encirclement by Western economic alliances led by the United States, Japan, and Europe. This will become the new normal for the coming decades.